Which of the following lease conditions would result in a capital lease to the lessee?
A) The lessee will return the property to the lessor at the end of the lease term.
B) The lessee obtains enough rights to use the asset and is in substance the owner.
C) The leased asset is not capitalized on the balance sheet.
D) The lease term is 70% of the property's economic life.

Question

Quizplus · Accepted Answer

In a capital lease, the lessee essentially owns the asset and must capitalize it on their balance sheet, recognizing both an asset and liability. Option B indicates that the lessee obtains enough rights to use the asset and is in substance the owner, which would result in a capital lease. The other options do not necessarily indicate a capital lease. Option A is simply indicating that the lessee must return the property at the end of the lease term, which could apply to both capital and operating leases. Option C suggests that the leased asset is not being capitalized, which would imply an operating lease. Option D relates to the lease term and the property's economic life, which is a factor in determining whether a lease is a capital or operating lease, but it alone does not define a lease as capital or operating.

Which of the Following Lease Conditions Would Result in a Capital